The Paradox of Reducing Health Care Spending

A N C O H N E verybody agrees that health care spending has been rising more slowly than it has in a long, long time.It is a trend that is likely to continue.In September, actuaries at the Centers for Medicare and Medicare Services (CMS) published their latest annual projection of future national health expenditures: what we, as a country, will spend on medical care for the next decade.The actuaries are famously pessimistic and, sure enough, they predicted that inflation (the year-toyear increase in costs) would start to rise.But they also predicted that this increase would remain below historical levels.Between 1990 and 2008, health care spending tended to rise at a rate that was 2 percentage points above inflation.And for the next 10 years?CMS actuaries predicted that health care spending would rise at an average rate of just 1.1 percentage points over inflation.In the world of health care economics, in which a few tenths of a percentage point are the difference between budget comfort and budget calamity, that's huge news.And if you talk to the experts, the big argument you'll hear is over why this is happening.It's possible that the slowdown largely reflects the lingering effects of the nation's economic slowdown.When people have less money to spend, they cut back on health care, just as they cut back on other goods and services.Other factors may be at work, too.Private employers have been changing the design of their insurance plans, requiring employees to pay more of their costs directly out of pocket.This in turn makes employees more sensitive to the cost of care and, just as the recession did, could discourage them from seeking more treatments.The Affordable Care Act also could be a factor, as it has changed the way Medicare pays for services, in ways designed to make hospitals, doctors, and the rest of the health care industry more efficient.Many researchers believe those changes are having an impact.